The Ukraine crisis: An energy wake-up call for the EU

15 September 2014

Laura Pérez-Cejuela

The crisis in Ukraine is a wake-up call for the European Union (EU), reminding its 28 member states that their energy dependence on Russia not only has a high economic price, but also a strategic cost.

Europeans import 52% of the energy they consume, generating a bill of Euro one billion a day. Russia is the main provider, supplying 39% of oil, 36% of natural gas, and 24% of solid fuels.

In this scenario, political and military tensions between Ukraine and Russia raise concerns about the security of supplies for the EU and pose a challenge to their independence in foreign policy. Moscow, aware of the powerful tool in its hands, has used energy in its attempts to get Kiev away from the Union and evade European sanctions.

In February, the former Ukraine government led by Victor Yanukovich was overthrown after thousands of people demonstrated for months against his decision to reject the EU-Ukraine Association Agreement. The Russian executive then decided to remove the advantageous energy prices it has applied in December. Moreover, they claimed almost US$ 5 billion to the new pro-European government to cancel a debt for previous deliveries of gas that remained unpaid. Meanwhile, the Russian Federation took over the Ukrainian peninsula of Crimea and sent troops to the east of the country to support pro-Russian separatists.

After several rounds of unsuccessful talks, Russia carried out its threat and on 16 June, it cut off the natural gas supplies to Ukraine, whose pipelines are essential to transport around half of Russian gas for Europe. For the moment, supplies to EU countries are supposed to be granted, but the situation unavoidably recalls the last energy crisis in 2006 and 2009 when similar disputes led to cuts-off that affected 12 member states.

However, the European Commission assures that energy security in the EU improved in the last years. Energy reserves capacity was increased and new reverse flows options that allow the gas to go through the pipelines in two directions were created Experts agree that security is higher now than in the past, but they warn that the political context could make it more difficult to find an outcome for the stand-off.

“In principle there is a better preparedness, but today the political situation is much more complicated with the events east of Ukraine and Crimea. It seems that the crisis will be longer and more severe this time,” stated Arno Behrens in an interview. Mr Behrens is the Head of Energy and Research Fellow in the Energy and Climate Change research unit of the Centre for European Policy Studies.

With this risk in mind since the beginning of the crisis, the EU has been very cautious in taking sanctions against Russia because of its role in the conflict even when there was a common consensus to condemn the annexation of Crimea. Economic links, particularly in the energy sector, bear on national governments. They feared the consequences to their own economies of any punishment to their third largest commercial partner.

In the end, the crash of Malaysia Airlines flight MH17, shot down by a missile when it was flying over eastern Ukraine, tipped the balance. On 29 July, the EU moved ahead and imposed economic and sectorial sanctions to Russia. Twenty-four hours later, Moscow reacted using its best weapon.

“In its sanction fervour, Brussels voluntarily creates obstacles for further cooperation with Russia in a key area like energy. This is a crazy and irresponsible step. This will inevitably increase prices in the European energy market,” said the Russian Foreign Affairs minister, Sergey Lavrov, in a statement. Nevertheless, Moscow has not yet taken this way, limiting its reaction to bans on agricultural and raw materials exports.

With such a backdrop, the EU is forced to push energy to the top of its political agenda for the next years. Last May, the European Commission presented an Energy Security Strategy with short and long terms actions. Its key proposals include improving efficiency and energy saving, increasing national energy production, and diversifying the sources and transit routes.

Today, the most realistic way to reduce the dependence on Russia is speeding up the construction of the Southern Gas Corridor, a trans-border pipeline that will carry gas from Azerbaijan to central Europe through the Caspian Sea. To buy more liquefied natural gas from the US is also an option, but much more expensive. In terms of domestic production, renewable energy is a priority but coal and other hydrocarbons, including the much-questioned shale gas, are also considered as alternatives.

In any case, experts insist that this is a long-term goal and they believe that the key action must be the completion of the internal energy market. To achieve this, it will be necessary to build a whole network of interconnectors and trans-border pipelines that will allow the free flow of gas among the member states, apart from increasing homogenization of national laws.

An integrated internal market would allow members states to assist each other in case of a supply crisis, providing their neighbours with energy coming from sources different from Russia. At the same time, it will contribute to reduce the gap in energy prices that are much higher today in those countries where Russian energy giant Gazprom dominates the market.

Integration, the seed of the European Union in itself, is again announced as the best solution to an old but renewed challenge.

Ms Laura Pérez-Cejuela is a journalist based in Brussels, Belgium and shared this story with Ecojesuit.